Network operators in at least two Australian states are likely to ditch parts of their extensive poles and wire networks in regional areas as they realise that the costs of delivering centralised generation to remote areas is no longer economically feasible.
The decisions are likely to be a foretaste of a sweeping change across electricity markets in Australia, and overseas, as generation moves increasingly to a decentralised model – including rooftops, community and small local generation and storage – instead of the long-standing centralised, hub and spoke model.
The falling cost of solar, and the anticipated falls in the cost of storage is making this possible. Australia is expected to be at the forefront because of the huge geographic areas covered by its networks, its sky-high electricity prices, and its excellent solar resources. The question for many is how far this new model will extend into cities and other heavily populated areas.
John Bradley, the head of the Energy Networks Association – the industry group that represents the distribution and transmission network operators across the country – says network operators in at least two states, Queensland and Western Australia, are likely to shrink their asset base to allow new competitors in the market.
“Some businesses will welcome the opportunities for other commercial players to come in and take their business off them,” he said at a conference last week. “Those businesses are looking basically to see their asset base shrink, and I am expecting that they will.”
Indeed, the two biggest operators in regional Queensland and WA have already conceded that new technologies such as solar and storage – and the emergence of mini and micro-grids – make the traditional form of delivery more or less redundant in some areas. Their services are already heavily subsidised by cash-strapped state governments, to the tune of $500 million in WA and more than $600 million in Queensland. Both governments have indicated this is unsustainable.
Last year, Ergon Energy, which covers more than 90 per cent of the state, said it was likely that its customers would find it cheaper to go offgrid – with renewables such as solar plus storage – than to remain connected to the network.
Horizon Energy, which services regional areas in WA, in March tendered for operators to supply large battery storage and solar systems for some towns as it contemplated whether centralised generation had any future in regional areas.
“Our traditional energy business may be very different and very small (in the future),” managing director Frank Tudor said last month, adding that the cost of solar plus storage was already a fraction of the cost of delivery of centralised generation through the networks to some remote towns.
Dramatic changes in the nature of electricity generation is forecast across the world. David Crane, the head of NRG, an energy giant in the US, said recently that building an electricity system in the 21st century based around millions of poles and wires is “shockingly stupid.”
The Rocky Mountain Institute recently released a report suggesting that solar plus storage could be economically viable for households in New York and Los Angeles within a decade. Investment bank Morgan Stanley said in a report earlier last month that solar plus storage would soon create a “tipping point” that causes customers to seek an off-grid approach.
It makes sense that it should happen in Australia – it’s the advanced economy with the highest retail prices, the biggest cost of dlivry (thanks to the huge geography), and the best solar resources.
As Muriel Watt, from the Australian Photovoltaic Association, pointed out in a presentation last week, stringing up poles and wires in regional areas doesn’t make a lot of sense.
As this table shows, in Ergon’s area – which accounts for more than 90 per cent of Queensland – the average customer density is just 4.3 per kilometre of wires. It’s a legacy of the “rural electrification” dream of the 1950s and 1960s, but given today’s technology choices and the offerings of mini grids and micro grids, it is actually quite absurd.
The question for many is how far this phenomenon – of replacing centralised generation with distributed energy – reaches into the cities. CSIRO last year suggested in its future grid report that nearly one half of generation could come from the users themselves – such as rooftop solar on households and businesses. But it also warned that one third of customers could take themselves off the grid if the utilities did not respond adequately and merely tried to shift the cost elsewhere.
This growth in self-generation, or the rise of the pro-sumer, is challenging network operators, generators and retailers like no other. A recent study published by Energy for the People and the Alternative Technology Association suggested the shift away from a centralised NEM to stand-alone community power solutions could be “quick and dramatic”, with most Australian regional towns and new housing estates expected to be able to function viably and economically off the electricity grid by as early as 2020.
Exactly how that is managed will be the big test – for consumers and for the incumbent industry. Watt accused the industry of resisting change and doing everything it could do slow down or prevent the rollout of distributed generation.
Bradley said that some form of centralised generation was essential, and the key was cost-reflective tariffs. Chris Dunstan, from the Institute for Sustainable Futures, said he was concerned that many customers would leave the grid, causing assets to become stranded and remaining customers paying more. For that reason, he said, there needed to be a much greater focus on energy efficiency and peak demand, to reduce the costs of delivery to all customers.